Michelle is saving for a new car.She wants to have $25,000 in her account in 3 years.If her account pays 11% interest,how much money will she need to put in her account now,to ensure that she has $25,000 in 3 years?
A)$18,280
B)$25,000
C)$20,000
D)$18,060
E)$18,000

Question

Quizplus · Accepted Answer

To find out how much Michelle needs to put in her account now, we use the formula for compound interest in reverse, which is the present value formula: $PV = \frac{FV}{(1 + r)^n}$, where PV is the present value (initial amount), FV is the future value ($25,000), r is the annual interest rate (11% or 0.11), and n is the number of years (3). Plugging in the values, we get $PV = \frac{25,000}{(1 + 0.11)^3}$, which calculates to approximately $18,280.

Michelle Is Saving for a New Car